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‘Bad Is Bad,’ ‘Good Is Good,’ Mike Wilson Says
Bad news became bad news early this month. Maybe you noticed.
In a world where equities are just as often priced off expectations for monetary policy as they are corporate fundamentals, there's a "bad news is good news" zone vis-à-vis the macro and it's pretty wide. As long as the incoming data isn't indicative of a recession, softer data's ok and in many cases it's actually preferable to the extent it's conducive to dovish policy outcomes. Another way of thinking about it goes like this: Mult
There are essentially six ways to improve a company’s financial performance. In order of difficulty they are:
* Improved top line (revenue growth from increased selling prices (weak) or real volume growth (strong))
* Operating profit growth (operating leverage from improved but higher risk cost structure with more fixed costs
* Pretax profit growth (financial leverage from riskier capital structure with increased debt)
* Net profit growth (changes from tax management practices)
* Earnings per share growth (financial engineering such as stock buybacks, splits, etc)
* Multiple expansion (market action)
As a firm moves down the list the outcome is easier to obtain but involves increased, less controllable risk. Sales growth is really hard, especially if it is real (not price related) sales growth producing increased market share. Pure financial engineering solutions (the last three) seem easy but there are limits. If a firm is growing real sales the number of follow-on options increases markedly. So when looking at stocks look for real sales growth first (not much of that around, by the way). When seemingly good results come from the changes at the bottom of this list, buckle your seat belts.
Loved that, Doc Lucky.